Russia has completed its accession into the World Trade Organisation (WTO), creating opportunities for British firms as it slashes import taxes.
Negotiations started after the breakup of the Soviet Union 19 years ago but a series of setbacks ensued, preventing Russia’s entry to the WTO, which lowers trade barriers and seeks to establish equal conditions for members.
From the date of accession, the Russian Federation has committed to fully apply all WTO provisions, with recourse to very few transitional periods. Russia’s entry is set to liberalise the flow of trade but is not expected to have the same impact as when China joined 10 years ago due to the current state of the world’s economy.
“It has been a long journey but it will undoubtedly strengthen the multilateral trading system”, said WTO director-general Pascal Lamy.
Russia becomes the 156th WTO member, with President Vladimir Putin hoping to win more favourable trade conditions on its exports which is expected to generate $2bn windfall for the country.
Russia is the UK’s fastest-growing major export market with exports rising from £2.3bn to £4.8bn between 2009 and 2011, and the drop in tariffs will make overseas goods even more attractive.
Lower tariffs on imported goods, which will typically drop by around 10%, may lead to an increase in the amount of goods sold to Russia as goods cheapen. The country’s accession to the WTO will open up UK exports to 142 million Russian consumers, which have the highest disposable income among the BRIC nations and hold a penchant for high-end consumer goods.
Bo Andersson, CEO of Russian car manufacturer Gaz, refuted suggestions that the automotive sector will lose out to foreign companies with protection around the industry set to gradually fall. He claimed that companies will be more competitive now that Russia has joined the WTO as the country will have access to better products and attract more foreign investment.
Gaz, Russia’s largest van manufacturer, will face increased competition from foreign vehicle makers but may take advantage of its distribution network by teaming up with Chinese car companies.
Mr Andersson, who has turned the company around since he joined in 2009 and attracted subcontracting deals with Daimler and Volkswagen, said that Gaz will benefit from the reduced tariffs on engines (of which Cummins is a supplier), tyres and chrome parts.
He said that it will improve Russian industry, which has been protected by high tariffs, as it means companies have not always had to be competitive.
Sales of passenger cars in Russia are up 15% on last year. A spokesperson for the automotive division of GKN, which makes axels and other components for the sector, said that it expects to benefit from relaxing tariffs as it will lower the cost of purchasing its goods.
Russia was the biggest economy missing from the WTO jigsaw and the change is expected to have a big impact on the steel industry, with the managed trade system with Europe no longer in existence.
Europe, like the US, granted access to the heavily subsidised Russian steel industry to sell a certain amount of its products without complaint in the past.
Ian Rodgers, director of trade organisation UK Steel, said that accession to the WTO will now level the playing field, benefitting European steel makers that have had to compete against subsidised companies. However, it will also reduce the limits placed on the sale of Russian steel, with competition set to increase.